Sunday, October 17, 2010

My question to you was why, during a time when investment and dynamism are so critical to our country, was it necessary to vilify the very people who deliver that growth? Instead of offering a straight answer, you informed me that I was part of a "reckless" group that had made "bad decisions" and now required your guidance, if only I'd stop "resisting" it.

As the Army Air Corps changed into the mighty Army Air Force (2.4 million troops and 80,000 aircraft at its peak), its capable and persuasive commander (General Hap Arnold), insisted that all pilots be officers. Actually, he wanted them all to be college graduates as well, until it was pointed out that the pool of college graduates was too small to provide the 200,000 pilots the Army Air Force eventually trained. But Arnold forced the issue on officers being pilots, and the navy had to go along to remain competitive in recruiting.

In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market). For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal. Or consider buying a banana from a store; to purchase the banana, your costs will be not only the price of the banana itself, but also the energy and effort it requires to find out which of the various banana products you prefer, where to get them and at what price, the cost of traveling from your house to the store and back, the time waiting in line, and the effort of the paying itself; the costs above and beyond the cost of the banana are the transaction costs. When rationally evaluating a potential transaction, it is important to consider transaction costs that might prove significant.

My question to you was why, during a time when investment and dynamism are so critical to our country, was it necessary to vilify the very people who deliver that growth? Instead of offering a straight answer, you informed me that I was part of a "reckless" group that had made "bad decisions" and now required your guidance, if only I'd stop "resisting" it.

As the Army Air Corps changed into the mighty Army Air Force (2.4 million troops and 80,000 aircraft at its peak), its capable and persuasive commander (General Hap Arnold), insisted that all pilots be officers. Actually, he wanted them all to be college graduates as well, until it was pointed out that the pool of college graduates was too small to provide the 200,000 pilots the Army Air Force eventually trained. But Arnold forced the issue on officers being pilots, and the navy had to go along to remain competitive in recruiting.

In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market). For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal. Or consider buying a banana from a store; to purchase the banana, your costs will be not only the price of the banana itself, but also the energy and effort it requires to find out which of the various banana products you prefer, where to get them and at what price, the cost of traveling from your house to the store and back, the time waiting in line, and the effort of the paying itself; the costs above and beyond the cost of the banana are the transaction costs. When rationally evaluating a potential transaction, it is important to consider transaction costs that might prove significant.